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Ratings agency Moody's downgrades UK from AAA to AA1

Moody's Investors Service has downgraded Britain's credit rating one notch from top-grade AAA to AA1. The credit rating agency cited slow growth and a rising debt burden as reasons for the demotion.

Moody's announced the cut on Friday, saying "subdued" growth prospects and a "high and rising debt burden" were taking their toll on the British economy. The agency also demoted the Bank of England from AAA to AA1.

The main driver for the sovereign downgrade, Moody's said, "is the increasing clarity that, despite considerable structural economic strengths, the UK's economic growth will remain sluggish over the next few years."

The agency added, though, that "the UK's creditworthiness remains extremely high" and its outlook is stable.

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UK loses AAA credit rating

"A combination of political will and medium-term fundamental underlying economic strengths will, in time, allow the government to implement its fiscal consolidation plan and reverse the UK's debt trajectory," said Moody's.

Friday's action did not come as a surprise, as all three of the major ratings agencies – Moody's, Standard & Poor's and Fitch – had put Britain's rating on negative watch as the economy continues to struggle.

Chancellor of the Exchequer George Osborne, the Conservative politican in charge of British finances, said Moody's decision to downgrade the UK's status was a "stark reminder" of Britain's debt problems, adding that the country must face the issue head-on.

"Far from weakening our resolve to deliver our economic recovery plan, this decision redoubles it," Osborne said in a statement. "We are not going to run away from our problems, we are going to overcome them."